Distinguished speakers, colleagues, ladies and gentlemen,
I am truly delighted to welcome you to this 7th edition of our Technical Meeting of OPEC and non-OPEC countries participating in the Declaration of Cooperation, which is being held for the first time via tele-conference. I would like to extend a special welcome to our guest HE Shaikh Mohamed Al Khalifa, Minister of Oil of Bahrain.
Ladies and gentlemen, colleagues,
We live in strange and unprecedented times. The world as we knew it ceased to exist a few months ago, with the appearance and rapid advancement of an invisible adversary — COVID-19.
This pandemic caused a global economic downturn of unparalleled proportions and strained health care systems in hard-hit countries well past their limits. Unemployment has hit rates not seen since the Great Depression in many of the world’s major economies. And lockdowns have led to the destruction of vast swaths of oil demand. This in turn has led to devastation in the industry, with lost jobs, shutdowns, bankruptcies and massive losses in investment.
But as that great leader of the transportation revolution, Henry Ford said: “When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.”
The headwinds we have faced in the oil industry, and as humankind, over the past several months have often seemed insurmountable. We could only helplessly watch as oil demand fell practically overnight to jaw-dropping historical lows.
We are already seeing evidence of a market recovery and hope to never again experience a day like ‘Black Monday’ – when West Texas Intermediate took a nosedive into negative territory for the first time ever on April 20th. Prices have recovered since then to a range of between $36-40/b.
Ladies and gentlemen,
We must not forget that in the face of adversity, blessings and unknown strengths often come to the fore. We have seen animosity between adversaries dissolve overnight and the world has learned how to work together on a much grander scale than ever before to overcome this deadly scourge.
Declaration of Cooperation producers got past their differences to agree upon the biggest oil adjustment decision of all time in early April. Leaders of the G20 and heads of state of major oil producing countries have pledged unprecedented support for OPEC+ activities and made real contributions to market stability.
The upstanding behaviour of DoC participants in these dark times has elevated the esteem of this collaborative platform to incredible, new heights. Practically every story in the media referring to the oil market positively mentions the OPEC+ decision and its stabilizing influence.
Production adjustments as agreed at the 9th and 10th (Extraordinary) OPEC and non-OPEC Ministerial Meetings on 9 and 12 April 2020 have set us on a course to aid in restoring stability to an energy market that was in drastic need of it.
Downward adjustments in overall crude oil production by 9.7 mb/d started on 1 May 2020, for an initial period of two months, with a subsequent adjustment for 6 months of 7.7 mb/d, followed by a 5.8 mb/d adjustment for a period of 16 months, to 30 April 2022.
With the DoC decision as an anchor, the market-driven shutdown of millions of barrels of production in North America, and further commitments from several DoC participants, the oil market has started to veer back on course. The emerging production profile shows encouraging signs of rising conformity by DoC countries, at great cost to their local industries and countries. This speaks volumes about the dedication of our group.
I am very happy to report that a month after the implementation began of the largest-ever internationally coordinated production adjustments, oil has responded swiftly and positively. The physical market has tightened and prices have recovered somewhat. Storage tanks are not filling as rapidly, and previously wide differentials between near and forward months are narrowing.
Demand is already rebounding in some of the world’s biggest energy consumers. China recently reported oil demand appears to be returning to pre-crisis levels. Promising signs of demand recovery are also being seen in India. World demand is expected to come back further in June, as stringent lockdowns start to loosen.
But we cannot be complacent. The recovery remains tentative, and continued rebalancing of shattered markets will continue to require both a strong recovery in demand and the determined implementation of pledges made under the DoC, as well as the market shut-ins.
I think we can say without a shadow of doubt that the high hopes that we all had when we signed the historic Declaration of Cooperation back in December of 2016 have been more than met.
In the past, our technical meetings have covered various topical issues, but the urgency of the COVID-19 pandemic and resulting demand destruction is dominating all discussion. This is not only about dealing with the emergency situation we find ourselves in today, but finding a path to what may be a different tomorrow.
Our first session will cover the impact of COVID-19 on the world economy, oil supply and demand, oil trade as well as oil stocks and the implication for the balance of demand and supply.
Meanwhile, in our second session we will discuss the impact of the DoC decisions on the global oil market from January 2017 to date.
Based on the latest issue of our monthly in May, the Secretariat projects that the world economy will shrink by 3.4% in 2020, following global economic growth of 2.9% the previous year. World oil demand growth in 2020 is expected to drop by a staggering 9.07 mb/d, with the worst impact seen in this quarter. We expect demand for the year to be around 90.59 mb/d – back to levels last seen before the 2014-2016 market downturn.
Along with dire economic projections across the board, we see very worrying signs regarding the effect the current crisis will have on investment in the oil industry. We are already experiencing a repeat of the 2014-2016 scenario, when many petroleum companies applied for bankruptcy. Many others are teetering on the edge of failure.
Non-OPEC countries will receive a massive blow, with CAPEX projected to drop by a whopping 23% y-o-y in 2020, to about half the $741 billion record set in 2014. Bringing stability back to the oil market will help protect the highly skilled jobs, innovation and advances in efficiency that are needed now more than ever, for both the world’s economies and the oil industry to recover. DoC countries, in particular, which rely so heavily on the oil industry, may be faced with pulling back on essential diversification efforts. These are the same countries that will be hardest hit by the energy transition.
Ladies and gentlemen,
I am very pleased to have some of the best minds and top leaders in our industry from around the world joining us by WebEx to guide us and share their perspectives. Some of these speakers have already been providing their sage advice and observations to OPEC during a series of special meetings.
Over the course of a month, from 17 April to 15 May, during the lockdown, we hosted a series of virtual round-table briefings with leading policymakers, select energy experts and market analysts from international institutions and agencies, the oil industry and the financial community to assess the pandemic’s impact on the world economy and the oil market in particular.
There was consensus among participants that the decisive and proactive output adjustments agreed at the April ministerial meetings will gradually boost the oil market and contribute to a global economic recovery.
I encourage all the esteemed delegations to proactively participate in this opportunity and present your views within this forum.
Finally, I want to take a moment to commemorate the life of a highly esteemed colleague and friend of our family. Hossein Kazempour Ardebili, the country’s veteran representative to, and longest-serving member of the Board of Governors of OPEC.
Mr Ardebili was a man of great honour who served his country valiantly through many crisis. He was an essential part of OPEC, serving on the Board since 2013 and on other occasions in the past, including from 1995 to 2008. He also was Chairman for several terms and was a member of several strategic committees.
Mr. Ardebili’s presence will be greatly missed in our meetings, at our discussions and in our hearts. May he rest in peace.
I wish us all a very stimulating, interactive and productive discussion today.